More firms eye local debt market to improve capital

Amid a shrinking budget deficit, several corporate and state-owned firms are now queing to tap the debt market to shore up their capital base, according to First Metro Investment Corp. vice-chairman Juanchito Dispo.

Total domestic borrowing via regular Treasury bill and bond issues — is expected to reach P300 billion this year or 11.1 percent higher than the projected P270 billion last year, said Dispo.

"With the government being able to keep a tight rein on the budget deficit, more and more companies are planning bond issuance to raise their funding requirements," Dispo said.

Among the companies that are expected to issue bonds this year are the Philippine Postal Corp. and Home Guaranty Corp., which provides risk guarantees and fiscal incentives for housing credits extended by financing institutions.

First Metro is the investment banking subsidiary of Metropolitan Bank & Trust Co., the banking arm of tycoon George S.K. Ty. It accounted for P64 billion out of the total P103 billion raised in the local debt market last year.

At the same time, Dispo expressed optimism the stock market will continue its bullish trend with more companies seen raising funds via a maiden offering of their shares to the public or follow-on offerings.

"We see the market stepping up. The low interest rate regime will spur more issues in the market. There will be more tier 2 issuances," Dispo said.

First Metro Securities Brokerage Corp. chief operating officer Gonzalo Ordonez, for his part, said. "The fundamentals remain strong. The market remains in an upbeat mode."

FMIC’s Junnie Banaag said corporate earnings are expected to grow by 15 percent this year compared with only 13 percent in 2006.

Banaag said property, banking and cement issues are likely to shine this year given increased infrastructure spending. The run-up to the May elections should also boost domestic spending.

Funds are increasingly becoming available to the National Government for infrastructure spending given that its interest payments are below target by some P25 billion for the first 10 months of 2006.

FMIC, however, expects the peso to weaken as inflows slow down starting January. The balance of trade is also expected to worsen early this year resulting from an export slowdown reflecting softer economic growth in the U.S. falling below their long-term trend of three percent per annum growth.

The peso is expected to breach P50 to $1 by the second quarter of the year.

FMIC’s outlook for crude oil prices, on the other hand, is flat or a slight decline based on the forecasts of the US Energy Information Administration. "Stable to softer oil price should further support the downward trend in Philippine inflation rates which had been pushed up in the last three years by spiraling crude oil prices and the additional 2 percent VAT," said a study commissioned by FMIC and the UA & P.

With these trends, FMIC expects annual inflation rate to hit about three to 3.3 percent or much lower than the government’s target of four to five percent. Thus, monetary policy rates are likely to ease in the first semester of the year, the study said.